- Full-year profit expectations slashed by 22%
- Fewer high-spending international visitors to London
- Lower footfall across estate
Casino and bingo operator Rank Group (RNK) slashed its full-year operating profit forecast by around 22% after weaker than expected trading in the third quarter through March continued into the final few months of its financial year ending 30 June.
Rank said it had seen some improvement in the Grosvenor casinos business since April, but visitor numbers were ‘considerably’ lower than expected.
Today’s profit warning shouldn’t come as a complete surprise. In February 2022, national tourism agency VisitBritain downgraded its forecast for the number of inbound visitors and spending in 2022 to 21 million and £16.9 billion respectively.
This represents just 52% and 59% of pre-pandemic levels.
LACK OF HIGH SPENDERS
Rank said it hasn’t yet seen the hoped-for return of high-spending overseas customers to London, while ‘softness’ continued across the firm’s UK venues outside the capital.
A lower than average casino win margin in the current quarter also impacted trading.
Leisure analyst at Shore Capital Gregg Johnson suggested the lower win margin reflected higher volatility of results because of a lack of high-spending customers.
Meanwhile, Rank’s digital businesses and its Spanish casino brand Enracha have traded broadly in line with expectations.
Assuming continued inflationary cost pressures across the group and a normalization of casino win margins, full-year operating profit is now expected to be around £40 million compared with prior guidance of between £47 million and £55 million.
The shares reacted negatively to the downgrade falling 13% to 85.9p.
EXPERT VIEW
Despite downgrading his 2022 operating earnings forecast by £8 million and his 2023 pre-tax profit estimate by £8 million to £62 million, Johnson maintained a buy recommendation on the shares.
Johnson commented: ‘Rank Group remains well financed with net cash of circa £50 million, uniquely positioned in the UK gambling space and trades on under six times our 2022 EBITDA estimates.
‘We see the current valuation pricing in little recovery in high spending international players.’
